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Toyota Defends Controversial New Share Sale

TOKYO — Toyota defended a controversial new share sale on Wednesday that critics, led by overseas institutional investors, derided as a bid to tame shareholder activism.

The world’s biggest automaker said 75% of shareholders voted in favor of the plan on Tuesday that will see it sell up to 50 million new shares, which must be held for five years and will not be publicly traded.

Largely restricted to Japanese investors, the new “Model AA” stocks carry voting rights and will be priced between 26% and 30% above the value of its common shares during several trading days in July.

Dividends paid on the new shares will rise from 0.5% to 2.5% by the end of the five-year holding period, when investors can convert them to common shares or Toyota would repurchase them, it said.

The firm said the move was aimed at luring long-term investors, but critics said it ran afoul of Japan’s new corporate governance code, adopted earlier this month.

The new rules were hailed as ushering in a new era of transparency for shareholders of Japanese firms, long criticized for giving vocal investors the cold shoulder.

“An objective of Japan’s newly expanded Corporate Governance Code, is to ‘promote mid- to long-term investments’ so that shareholders who hold company-issued shares for a medium to long term have the potential to become important partners for companies,” Toyota said.

The company added that the new share issue would help fund expensive research work, particularly on next-generation technology such as fuel cell cars.

But U.S.-based advisory Institutional Shareholder Services countered that the new class of shares would ultimately reduce investors’ influence over management decisions.

“It is difficult to escape the impression that the company wants to increase stable and silent investors by replacing common shareholders with Model AA shareholders,” it added.

Nicholas Benes, representative director at the Board Director Training Institute of Japan, said the locked-in nature of the shares would turn away many prospective investors.

“Your standard shareholder doesn’t want to give up liquidity for five years,” he told Bloomberg News. “Toyota has encountered enough resistance here that you’d have to think twice about trying to do something like this again.”